16/07/2010

By Gary White, Business Advisory Partner at CBHC LLP

Companies which forecast growth are far more likely to achieve it, says Gary White, Business Advisory Partner at CBHC LLP.

The role of the accountant has changed in recent years. Technological advances have released us from long hours of number crunching and provided far more opportunity for complex analysis and creativity. Armed with figures from the past and present, plus an understanding of your business and market sector, we accountants are ideally placed to help you develop accurate, realistic forecasts that could transform your business.

What makes a good forecast?

Informed: You must understand the dynamics of the industry — what impact are technological, legislative, personnel and economic developments having on the market that will affect your business?

Based on good quality data: Do you know how your margin, turnover and costs compare with your regional and national competitors? Accountants who have access to sophisticated benchmarking software can help you to identify opportunities for improvement and growth and evaluate your competition. Also, it may sound obvious, but make sure that the figures you are using are as accurate as possible. For example, if your end-of-year accounts are already 10 months old they are no longer representative of your current situation.

Long term: In the current economic climate there is a temptation to shorten the forecasting period to months or, at most, a year ahead. Limiting your vision for the future could cause you to make knee-jerk decisions which compromise you in the long term. Yes the market is difficult, but it is full of opportunity and businesses that look ahead and gear up for recovery in advance will be best placed to take advantage of them. You should have a 5 year forecast in place at all times.

Current: The business forecast should be a working document that you refer to regularly when making decisions and during board meetings. If it’s treated as a bureaucratic necessity and left for months it becomes obsolete, but, if used as a planning tool, the forecast helps steer the strategic growth of a company and acts as an invaluable resource to help secure funding and build confidence with stakeholders.

Aspirational: Try not to lose sight of the fact that being in business for yourself should be enjoyable. Maintain focus on what you are in business for and make sure it delivers: if, for example, you’re planning an exit strategy, look for opportunities to add value to your business within the current trading climate. Decide where you want to be and plan backwards, rather than allow anxiety and negative press to decide your goal.

And if you’re wondering whether maintaining an accurate, current, detailed forecast is worth the time and effort, here are some facts to consider:

• Investors will demand forecasts of the calibre described here before they will consider your application for funding.

• A current forecast which is relevant to your business, and has genuine meaning, will help steer the strategic direction of the business and keep you focused on long term growth.

Forward-thinking businesses that have a clear direction and market focus attract and retain the most talented individuals.

• Uncertainty is one of the main causes of anxiety and stress; working towards a clear goal will inspire and motivate everyone involved.

• A clear picture of the future will help you make more reliable resourcing decisions, on everything from staff levels to materials and marketing spend.